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the boomer shift

This is part of the Globe and Mail's week-long series on baby boomers and how their spending, investing, health and lifestyle decisions could affect Canada's economy in the next 15 years. Is Canada ready for the boom?

For more, visit and on Twitter at #GlobeBoomers.

We've heard it so many times now that it feels like a tape loop.

"The baby boomers are retiring … The baby boomers are retiring … The baby boomers are retiring."

Most Canadians know the big bulge of the population is entering its senior years.

Less well recognized is the large dent this shift is putting in the economy, a trend The Globe and Mail is exploring in a week-long series that begins this weekend. And more importantly, the sweeping consequences of that unavoidable reality.

For a glimpse at the future, look at Japan, the greyest of the developed countries. It has experienced two decades of little or no real economic growth. Europe isn't far behind.

Here in Canada, the exit of the boomers from the labour force is already setting off a chain reaction of slower growth, low interest rates, weaker investment returns, a budget squeeze for governments and growing intergenerational tensions.

What's more, the work force is losing a generation of skills and experience that won't be easily replaced.

Unless we find a way to restock this generation's economic output and dynamism, Canadians will face some tough choices.

The baby boomers, now aged 50 to 69, have never known anything but rising prosperity.

That may not be true for future generations. The slow economy will likely mean lower standards of living.

It also means the tax base will grow much more slowly, perhaps for decades, at a time when Canadians will be drawing more heavily on government services, most notably health care and Old Age Security.

This would all be fine if most Canadians were braced for this economic downshift. It's not clear they are.

Don Drummond, a former top federal Finance official and chief economist at Toronto-Dominion Bank, says he's constantly surprised how unprepared many senior business leaders and government policy makers are about the looming demographic challenges. Even the Bank of Canada, he said, has been slow to fully recognize the slowing potential growth of the economy due to aging.

Too many forecasters are badly overestimating future growth because they expect the economy to magically return to its former state. Some expect a sudden, and unlikely, productivity burst to fill the gap. Others see immigration as the way out.

If experts aren't realistic about what's ahead, it's hard to expect ordinary Canadians to be ready.

The impact of the tough choices that lie ahead will fall heavily on individuals.

Something will have to give if health-care costs, accounting for nearly half of many provincial budgets, continue to grow much faster than the tax base. Canadians will have to choose between paying higher taxes, cuts in services, rising deficits, or a combination of all three.

The good news is that Canada has a lot going for it that will help offset the demographic steamroller headed its way. Unlike countries such as Japan, it accepts large numbers of immigrants every year. That will help keep Canada's work force younger and more dynamic.

But there is no easy way out. Immigration and delayed retirement can partly offset the slowing growth in the labour market – but only partly.

The demographic trends are too powerful.

And it would be nice to think Canada's economy is poised for a productivity renaissance as it copes with the fallout from the resource price shock. But that too seems unlikely.

The most enduring consequence of the boomer retirement wave may be widening intergenerational inequality.

The big programs that seniors draw on – health care and Old Age Security – are paid for out of current revenues.

But the math isn't favourable. The cost of these programs is rising at a faster rate than the tax base, a balance that will become more tilted as the boomers retire.

Unless all Canadians start to pay now for the services they'll need in their final years, as they do now with the Canada Pension Plan, the future burden will fall heavily on a smaller generation of younger workers. These younger workers may have to pay more in taxes, and get less back in services. It simply isn't fair to duck the responsibility.

Time is running out. But it's not too late to do the right thing.